No need to panic about Ukraine’s economy (IMF)

WASHINGTON (Reuters) – International Monetary Fund chief Christine Lagarde urged calm on Ukraine’s economic situation as talks on setting up international aid for the country gathered pace.
With the new government in Kyiv seeking “at least” $15 billion for this year, Lagarde said it was “highly premature” to throw out big numbers before a proper assessment of the country’s needs.
“We don’t see anything critical, which is worth panicking at the moment,” Lagarde said after talks on Ukraine with German Foreign Minister Frank-Walter Steinmeier in Washington.
“We have to rely on the facts,” she said, adding that an IMF team would arrive in Ukraine early this week to begin an assessment. This team, she added, would discuss current policies “as well as expected policies” that would be crucial in a country support program. She spoke as talks to stage a financial bailout for the country following the overthrow of Russian-backed president Viktor Yanukovych gathered pace.
The revolt led Moscow to cancel a much-needed $15 billion loan after only $3 billion was disbursed, leaving Kiev with little money in its coffers and dwindling foreign exchange reserves.
But US Secretary of State John Kerry said Russia had assured him it was willing to join the effort. Kerry said Russian Foreign Minister Sergey Lavrov said in a phone call on Friday that Russia would be “involved in helping to deal with the economic transition that needs to take place at this stage.”
Steinmeier said any medium should have a large base of contributors. “The stabilization of Ukraine can only be successful if we get as many partners as possible on the table,” he said.
While at the start of the week Ukrainian officials had estimated the country’s needs at $35 billion, on Thursday Finance Minister Olexandr Shlapak said immediate demand was less than half.
“We will ask for at least 15 billion dollars. But things will become clearer when the time comes,” he said, according to the Interfax-Ukraine news agency.
Earlier Friday, Ukraine’s new Prime Minister Arseny Yatsenyuk began laying the groundwork for an aid package. He announced capital controls to slow the flight of money and the depreciation of the currency, and pledged to undertake tough reforms.
“The Ukrainian government will do everything to stabilize the situation… Now the main thing is to keep calm,” he told the central bank, according to Interfax-Ukraine.
He said he was ready to attack subsidies and social programs and raise tariffs, all remedies the IMF has advocated for in recent years. “The government will take extremely unpopular measures,” he said.
Capital controls announced by the central bank – a daily cap on foreign currency withdrawals from bank accounts – had an immediate effect, strengthening the currency, the hryvnia, to 9.18 to the dollar after hitting a record low of 11 .31 to the dollar on Thursday.
Analysts said Kyiv needed funds quickly because government cash levels are near the bottom and its foreign reserve levels are low.
Yatsenyuk said reserves had fallen to $15 billion and cash in government accounts was a paltry 4.3 million hyrvnias, or less than $500,000.
“They need money just to allow the budget to work,” said economist Lubomir Mitov of the world banking association, the International Institute of Finance. “Soon, it’s a matter of days.”
Mitov described a dire situation in the Ukrainian economy in which already extremely weak banks experienced deposit runs, the government missed pension and salary payments, and factories in some regions stopped production in due to lack of orders.

Christi C. Elwood